Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:18]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. And those are episodes 1, 3, 5, 7, and 9. One of our listeners, Karen, has also reviewed the entire catalog and has additional recommendations as foundational episodes. Ain't nothing wrong with that! And Karen's recommendations are episodes 12, 14, 16, 19, 21, 56, and 82, in addition to the first five that I mentioned. Now I realize women named Karen get a bad rap these days, but I assure you that all of our listeners are intelligent, thoughtful, and savvy. Yes! And don't forget that the host of this program is named after a hot dog. That's not an improvement.

Mostly Voices [1:41]

Lighten up, Francis.

Mostly Uncle Frank [1:45]

But now onward to episode 180 of Risk Parity Radio. Today on Risk Parity Radio, it's time for our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. And it was just another one of those weeks we've been so accustomed to in 2022.

Mostly Voices [2:12]

Fire and brimstone coming down from the skies, rivers and seas boiling, 40 years of darkness, earthquakes, volcanoes, the dead rising from the grave, human sacrifice, dogs and cats living together, together. Mass hysteria. But before we get to that, I'm intrigued by this.

Mostly Uncle Frank [2:27]

How you say? Emails.

Mostly Mary [2:35]

And first off, first off, we have an email from Kirk. And Kirk writes, dear Frank, I just listened to episode 81 on TIAA real estate, q-r-e-a-r-x, which you did not recommend. Since May 5th, 2021, QREARX has increased by about 24% while the market in general has decreased.

Mostly Uncle Frank [3:16]

Did you update your comments on QREARX since episode 81? If so, in which episode did this occur? Would you consider revisiting QREARX? Sincerely, Kirk And the answer is, well, no, I would not. Forget about it.

Mostly Voices [3:19]

For a few reasons, many of which I went over in that

Mostly Uncle Frank [3:23]

episode 81. But before we get to that, just as a matter of process, one of the worst ways to choose investments is by using a one-year rear view mirror. That is what amateurs do. They chase recent good performance, and that is why amateur investors typically underperform even the funds that they hold by 2% to 4%. Because instead of holding and rebalancing, buying low and selling high, they're chasing good performance and buying high, and then wondering why it blows up later. C-ARC Funds. You can't handle the crystal ball. So just because something had a good year last year is no reason to buy it. It is a reason not to buy it. None of the key parameters of this real estate account, and it's not a fund, it's an account within a variable annuity. But anyway, none of them have changed. It still has a 10-year return of 7. 82% since inception 6.54%. Those are not great performance numbers for a REIT. They're just not. Now, I'll link to a TIAA Real Estate Account Summary in the show notes. But one of the problems with these sorts of things is because they're not traded every day, you really don't know what the value of them is, and they publish a value every month or quarterly. In reality, as it says in this summary, returns and the principal value of your investment will fluctuate Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your accumulation units. And then for performance information, you actually have to call this number. So you cannot really compare this to a publicly traded REIT. And if you did, you would find that there were a lot of REITs that went up 30 or 40% last year and are still up 20% as of the end of March of this year on an annual basis. So there's really nothing special about that particular performance anyway. And the whole structure that it's within is one that's not very good for investors. It's in a variable annuity structure. Now, TIAA prides itself on having lower cost annuities than other firms, which is true, that doesn't make it a good idea. A variable annuity is essentially a way to try to create a private traditional IRA. And most of them have high fees in their construction just on management, regardless of what you're invested in, and then also have relatively high fee choices inside the account. And this one has an annual expense ratio of 0.87%, which is just terrible. That's not an improvement. That's just for the fund, not even including the expenses that you would pay to have the annuity structure itself. And then in addition to the fees you have to pay to be in one of these things, you have to deal with the lousy treatment they get. for getting your money out. Probably have a penalty if it's before 59 and a half. You are going to pay ordinary income on the money that comes out of one of these things. Not capital gains tax, not the lowest tax. You pay the highest tax for getting your money out of one of these things. And if you give this to your heirs, guess what? Guess what? They get to pay ordinary income tax. They get to pay ordinary income tax when you could have put this in a taxable account. It would have been subject to a stepped up basis and they would have paid no income tax. So do you really want to saddle your kids with something awful like this? People don't think about these things. These things are terrible.

Mostly Voices [7:31]

You need somebody watching your back at all times.

Mostly Uncle Frank [7:35]

So I think the only reason that you'd be in this structure at all is if you had to be in it Because your 403B or however it was set up puts you in this and you didn't really have a choice. Or the other choices were even worse annuity structures. Danger, Will Robinson, danger. But there's no real reason anybody should be going out looking for something like this when you have so many other alternatives. Not gonna do it.

Mostly Voices [8:00]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [8:05]

You have self-directed IRAs if you're rolling from a traditional IRA. You have ordinary taxable accounts. You have Roth accounts. Use them. Forget about this stuff. Forget about it.

Mostly Voices [8:17]

Forget about complicated products foisted

Mostly Uncle Frank [8:21]

upon us by the financial services industry.

Mostly Voices [8:25]

Do you have life insurance, Phil? Because if you do, you could always use a little more, right? I mean, who couldn't?

Mostly Uncle Frank [8:33]

that are largely obsolete and unnecessary. Am I right or am I right or am I right? Right, right, right.

Mostly Voices [8:40]

But thank you for that email. Second off.

Mostly Uncle Frank [8:47]

Second off, we have an email from my contact info. Oh, I didn't know you were doing one.

Mostly Voices [8:52]

Oh, sure. And my contact info writes.

Mostly Mary [8:56]

Frank, episode 176 was a great episode. As always, thank you. The paper you reference is outstanding and conclusions about correlation between equities and treasuries solid. As you point out, correlation is not a constant and can vary depending on measurement period and frequency of data such as monthly or yearly. The math is important to understand, but perhaps it is useful to consider fundamentally why treasuries are a diversifier. These fundamental differences, such as duration and issuer, are the cause of the correlation benefit. As often stated, correlation is not causation, but fundamental differences between financial instruments can cause diversification correlation benefits. Sorry for stating the obvious, but discussions about correlation perhaps should be linked to fundamentals to avoid exposure to spurious correlation. Thank you.

Mostly Voices [9:56]

You are correct, sir, yes.

Mostly Uncle Frank [10:00]

Well, just so everybody is reminded what we were talking about there, it was the correlation between treasury bonds and the stock market going back to 1952 in that paper in episode 176. And I think you are definitely correct that correlation is a statistical measurement But it's not caused by the fact that this investment is different in some way than another investment. And it's not some kind of magical connection between those two investments.

Mostly Mary [10:39]

You can also use the ball to connect to the spirit world.

Mostly Uncle Frank [10:44]

What it's caused by is that different investments perform differently in different markets. macroeconomic conditions, the main ones being whether growth in the economy is slowing or growing and whether inflation is slowing or growing. And so investments that tend to perform well in a certain economic environment will be correlated to other ones that perform well in that economic environment, but have lower correlations to other investments which perform better in other economic environments. But the data is also very noisy. If you measured correlation between two investments every single day, you would get a whole bunch of random numbers practically. The proper way to think about it is, probabilistically, that you can know what it is over a long period of time and then be able to say general statements like most of the time, these two assets will be uncorrelated or have low correlations, or that they are highly correlated most of the time. It's kind of the difference between climate and weather, that over a long period of time you can say the climate in this area is particularly dry or particularly wet, or cold or hot.

Mostly Voices [12:08]

You want neither cold nor hot. So because you are lukewarm, I will spew you out of my mouth.

Mostly Uncle Frank [12:16]

But that doesn't tell you what the weather's going to be like on any particular day in that location. But that's the way markets tend to work. And why crystal balls trying to predict markets generally do not work very well. That's not how it works. That's not how any of this works.

Mostly Voices [12:34]

Because they are looking at a climate and trying to predict

Mostly Uncle Frank [12:37]

a weather. It's kind of looking at the aura around the ball.

Mostly Mary [12:41]

See the movement of energy around the outside of the ball.

Mostly Uncle Frank [12:47]

Or in the worst cases, saying things like, well, the average rainfall here is 10 inches, and we've only had eight inches so far this year, and there's only two weeks left in the year. Therefore, we're going to have two inches of rain likely in the next two weeks.

Mostly Voices [13:06]

Wrong!

Mostly Uncle Frank [13:10]

In fact, things like that rarely happen in that manner, and that is what is known as the Gambler's Fallacy, believing that something, a certain number, is, quote, due, unquote, because you haven't seen it in a while. Wrong! That kind of crystal ball does not work either. But I digress. Inconceivable. It's probably enough on that and thank you for that email.

Mostly Voices [13:39]

Bow to your sensei. Bow to your sensei. Last off.

Mostly Uncle Frank [13:46]

Last off, we have an email from Holly. And Holly writes.

Mostly Mary [13:51]

Hi Frank, I love your podcast and it is the main one I listen to right now. I am slowly catching up on past episodes but wanted to know about your recommendations for books to read. This came to mind after the episode you were mentioning Simple Path to Wealth by J.L. Collins, which is my favorite. I followed his blog for years. Have you done an episode on books you recommend readers to read and why? I don't think I'd like another job. As a financial coach, I highly recommend my clients read the following to get started：In Order, you, Money or youe Life, the Next Millionaire Next Door, The Simple Path to Wealth, Playing with Fire, Think and Grow Rich, you, Need a Budget, the Little Book of Common Sense Investing, All About Asset Allocation, the Four Pillars of Investing. A more advanced list of books I suggest include for those DIY investors and would love your advice as well：Principles, Life and Work by Ray Dalio. The Intelligent Investor, the Definitive Book on Value Investing, a Book of Practical Counsel, Revised Edition, Collins Business Essentials by Benjamin Graham. All About Asset Allocation, Second Edition by Richard Ferri. All About Index Funds, the Easy Way to Get Started, All About Series by Richard Ferri. Any others? Any risk parity books? Besides that, any other books about life in general do you recommend? Do you have a good reads list? Thanks, Holly.

Mostly Uncle Frank [15:29]

Well, Holly, I think you've really stepped in it. A question.

Mostly Voices [15:35]

Since before your sun burned hot in space and before your race was born, I have awaited a question.

Mostly Uncle Frank [15:45]

You ask a question like this to an uncle, and it just becomes a license to pontificate for hours on end. But I will try to be reasonably brief here. First, with respect to personal finance books and finance books in general, the most important problem you face in recommending books is actually recommending something that somebody will actually read and that they will have some kind of identification with. that the book makes sense to them and the voice of the author seems familiar enough to them that they find it credible and worth listening to. And the books that you have on your personal finance list are a lot of the classic ones that would be attractive to a reasonably wide audience. But let me give you a few other ones that may appeal to certain kinds of people. First one that I'll give you is Early Retirement Extreme by Jacob Lund Fisker. Now Jacob Lund Fisker is a physicist, so this book is kind of like your money or your life written by a physicist. It is more about philosophy and systems than it is about nuts and bolts. And it will appeal and does appeal mostly to people who have been trained in the sciences, or have that kind of inclination. Next up, we have Set for Life by Scott Trench. Now, I think this book is very appealing because it's written by somebody who's younger. And the problem that a lot of these older books have is that they're just written by some old dude.

Mostly Voices [17:31]

So that's what you call me.

Mostly Uncle Frank [17:35]

And don't really have necessarily the right voice for somebody who might be in their early 20s, sort of thinking about getting going. Cool.

Mostly Voices [17:44]

Fire, fire, fire, fire, fire.

Mostly Uncle Frank [17:48]

So I can tell you that Set for Life did resonate well with all three of my sons who are in their early 20s. I think the broke millennial books by Aaron Lowry also kind of fall into this category that are going to be appealing to younger listeners. A book that some may find appealing who are later in their 20s and maybe have spent some time just spinning their wheels and not being very intentional about their finances or where they're going is the Year of Less by Kate Flanders. And that is really kind of a memoir, a mini memoir, that is a story and not a nuts and bolts kind of book. Another new one on the block that I just read is Taking Stock by Jordan Grumet, also known as Doc G. That book is not out yet. I have read an advanced copy of it. And it comes from the perspective of a hospice doctor and what he's learned dealing with patients who are dying and how that relates to finances. Now, it's probably going to appeal mostly to people in the medical profession or related professions, but I think it also is generally appealing to people who are somewhere in their 30s plus and have may have started a family and just want to think about the big picture of how finances fit into their lives.

Mostly Voices [19:09]

You never know what you're going to get.

Mostly Uncle Frank [19:13]

I can tell you that after my wife and I read it, we realized we needed to update our will. And so, we did. All right, moving along here out of the personal finance category into more General or advanced topics. Again, I think all the books that you listed there are good ones. In the risk parity category, I don't think there's been a definitive book written for do-it-yourself investors on this topic. There is a new book called Risk Parity by Alex Shahidi that is discussed over at Risk Parity Chronicles. Go to their resources page and that will give you a whole list of materials, including some books. But most of those are going to be professionally and technically oriented, so they're more like the intelligent investor than a book about personal finance. If you want to read about how markets work, I would recommend Misbehavior of Markets by Benoit Mandelbrot, More Than youn Know by Michael Mauboussin, and any of the Nassim Taleb books, you can try any fragile or black swan. All of those deal with the application of fractal mathematics to the underpinnings of financial markets and other things, which is one of the reasons they are inherently unpredictable in many ways. And then we get to any other books about life in general do I recommend. Well, we could be here for hours if we went into all of that.

Mostly Voices [20:52]

Let me put it this way. Have you ever heard of Plato, Aristotle, Socrates? Yes. Morons.

Mostly Uncle Frank [20:59]

Let me just give you a few. So good they can't ignore you by Cal Newport is something just about everybody should read, and especially young people graduating from high school. That's the perfect book for them to read at that age. And the theme of that book is that the advice to, quote, Follow your passion, unquote, is bad advice for most people most of the time. And what people really should be doing is going out, trying things, and developing skills because the skills will lead to the passions. And along those lines, there are a number of other books that I would read or recommend that go to this idea of what makes a particular activity valuable to participate or not to participate? How do I decide what to do with myself? Do I want to climb a mountain? Do I want to plant a garden? Do I want to make a podcast? A good book to read on that topic is Drive by Dan Pink. There's an excellent 10-minute animated YouTube video that summarizes it that I'll link to in the show notes.

Mostly Voices [22:08]

What's going on? Why are people doing this? Why are these people, many of whom are technically sophisticated, highly skilled people who have jobs, okay? They have jobs. They're working at jobs for pay doing sophisticated technological work. And yet, during their limited discretionary time, they do equally if not more technically sophisticated work, not for their employer, But for someone else, for free.

Mostly Uncle Frank [22:35]

And it's directed at businesses trying to motivate employees. But one of the main findings is that the kinds of activities that people find the most fulfilling involve three components, autonomy, mastery and purpose. And so that gives you a way of evaluating whether you want to do something or not. Does this involve components of autonomy, mastery, and purpose? Now expanding on that, we have books by Steven Kotler who writes a lot about flow. Flow is the same outfit every day. It's an insult to my creativity.

Mostly Mary [23:17]

Or flow states, which was a concept developed by a

Mostly Uncle Frank [23:21]

psychologist named Meh hi chicks and me hi. Now being in a flow state is one of the joys of life and is that feeling of being completely integrated with your surroundings, the people that are there, the activity that you are involved with. Athletes call it being in the zone, but it can actually be achieved in all kinds of different activities from meditation to singing in a choir, to engaging in extreme sports, or even to writing. A couple of good books about that and incorporating these ideas of autonomy, mastery, and purpose are Art of Impossible by Steven Kotler, written, I think, last year he wrote that, and Rise of Superman, which is one he wrote about five or six years ago about people engaged in extreme sports and why they do it. Two other things I think just about everybody would benefit from reading would be the essay Self-Reliance by Ralph Waldo Emerson, where you can get a book of Self-Reliance and other essays, part of which is the first thing you hear when you listen to this podcast. Just about all books and ideas in the self-improvement genre are actually rooted in Emerson and Thoreau. So you might as well go and read the originals. Yes, the old ones, the ones who made us. You can also read the works of a author named James Allen, who wrote a whole bunch of stuff around 1900, most popular of which is called As a Man Thinketh, which is also basic foundational material for all motivational speakers and the like. The old ones here, the ones who made us, yes. Yes, it is still in my memory banks. Everybody should read Man's Search for Meaning by Viktor Frankl. And that also gets at the idea of finding purpose in life and life's activities. And to cap this all off, there are three topics that I like to read about and investigate. a lot besides this finance stuff, some of which is related to this finance stuff. One is Prospect Theory or Behavioral Economics. The best book there is Thinking Fast and Slow by Danny Kahneman. Another nice book in that area is Predictably Irrational by Dan Ariely. The second area I like to read about is fractal mathematics. and how it applies to nature, finances, and other things. I already mentioned a couple of books in the finance area by Mandelbrot and MobaSon. A couple of nice books in that area by Mark Buchanan are Ubiquity：why Catastrophes Happen and another one called Forecast What physics, meteorology, and the natural sciences can teach us about economics. And a third topic I'm very interested in is memetic theory, which are ideas of Rene Girard. And that is generally why we want things and how it creates conflicts. I'll just give you one book there that came out very recently that makes this topic more accessible for more people. It's by Luke Burgess and it's called Wanting：the Power of Memetic Desire in Everyday Life.

Mostly Voices [27:11]

And if you are interested in more of that stuff, I have a dormant blog website called Prospecting Memetic Fractals that I will link to in the show notes. You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [27:19]

But I have not written on it in several years. But that is certainly enough of that for one sitting.

Mostly Voices [27:27]

Shut it up, you. Shut it up, me.

Mostly Uncle Frank [27:31]

And so thank you for that email and the soapbox. Okay, everybody, everybody chill.

Mostly Voices [27:38]

Enough for something completely different.

Mostly Uncle Frank [27:46]

What is that? What is that? What is it? And of course, the something completely different is our weekly portfolio reviews of the seven sample portfolios at www.riskparityradio.com on the portfolios page. Looking at these horrible markets last week, just when you think it couldn't get any worse. The S&P 500 was down 5.05%. The Nasdaq was down 5.6%. Gold was up 1.15%.

Mostly Voices [28:20]

I love gold.

Mostly Uncle Frank [28:24]

Long-term treasury bonds represented by the fund TLT were down 2%. REITs represented by the fund R E E T were down 6.22%. They were the big loser last week. Commodities represented by the fund, the PDVC were up 1.48%. Seems like a theme this year.

Mostly Voices [28:45]

That is the straight stuff, O Funkmaster.

Mostly Uncle Frank [28:49]

And preferred shares represented by the fund, PFF were down 3.59%. There was lots of the usual turmoil over inflation and the anticipated rate increases by the Federal Reserve. There was a fairly violent move in the short end of the Treasury bond curve as the two-year bond is now over 3% and the five-year bond actually bears a higher interest than either the 10 or the 30-year bonds. So we're back to that yield curve inversion which makes everybody start talking about recessions in the next one to two years. if not sooner. But anyway, looking at these portfolios, these sample portfolios, the first one is the All Seasons Portfolio. This one is 30% in stocks, 55% in intermediate and long-term treasury bonds, and the remaining 15% divided into a gold fund, GLDM, and a commodities fund, PBDC. It was down 2.16% for the week. It is down 13.3% year to date and is down 1. 33% since inception in July 2020. Moving to our kind of bread and butter portfolios here. The first one is this Golden Butterfly portfolio. It is 40% in stocks divided into a total market fund and a small cap value fund, 40% in Treasuries divided into Long-term Treasuries and short-term Treasuries, and then 20% in gold, the GLDM, which helped it be the best performer last week again, meaning it lost the least. It was down 2.02% for the week. It is down 10.19% year to date and is up 11.63% since inception in July 2020. In a week like that, you'd have to say, yeah, I'll take that. Next one is the golden ratio. This one is 42% in three stock funds. It's got 26% in a long-term treasury bond fund, 16% in gold, GLDM, 10% in a REIT fund, REET, and the rest in cash. It was down 2. 89% for the week. It is down 14.83% year to date and is up 8.2% since inception in July 2017. 2020. Next one is our risk parity ultimate. I will not go through all 14 of these funds, but it was down 2.68% for the week. It is down 17.04% year to date and is up 4.95% since inception in July 2020. Now moving to our experimental portfolios that involve some leveraged funds.

Mostly Voices [31:43]

We got a scary 140 this week.

Mostly Uncle Frank [31:46]

These are really looking hideous in a down market like this.

Mostly Voices [31:50]

Look away, I'm hideous.

Mostly Uncle Frank [31:53]

First one is the Accelerated Permanent Portfolio. This one is 27.5% in a leveraged bond fund, TMF. 25% in a leveraged stock fund, UPRO, UPRO, 25% in a Preferred shares fund PFF and 22.5% in gold GLDM. It's wishing it had more gold right now. It was down 5.38% for the week. It is down 31.14% year to date and is down 6.36% since inception in July 2020. It's looking kind of like the Nasdaq these days. And the next portfolio is the aggressive 5050. This one is the most leveraged and the least diversified of these portfolios and suffers a lot for both of those reasons.

Mostly Voices [32:49]

You can't handle the gambling problem.

Mostly Uncle Frank [32:53]

It has 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF, and the remainder is divided into a preferred shares fund and an intermediate Treasury Bond Fund. So it's basically half stocks and half bonds with leverage. It was down 7.08% for the week. It is down 39.3% year to date and is down 10.81% since inception in July 2020. And that is becoming one ugly experiment. What happened to your face?

Mostly Voices [33:24]

It looks like an old catcher's mitt.

Mostly Uncle Frank [33:29]

We run ugly experiments here, so you don't have to. And our last portfolio is the Lever to Golden Ratio portfolio. This one is levered up about 1.6 to 1. And it has in it 35% in NTSX, which is a composite S&P 500 and Treasury Bond fund. 25% in Gold, GLDM. 15% in iREIT O. 10% each in a leveraged small cap fund, TNA, and a leveraged bond fund, TMF, and the remaining 5% in a volatility fund and a Bitcoin fund. It was down 3.83% for the week. It was down 19.54% year to date and is down 15.98% since inception in July 2021. It's not yet a year old. But it's interesting if it were not leveraged, it would actually be down about 12.2% year to date. Hopefully things will improve for all of us next week, but it does seem to feel like the beatings shall continue until morale improves.

Mostly Voices [34:40]

Well, how are we supposed to know when that is? You won't. I'll let you know.

Mostly Uncle Frank [34:46]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, Please go to your favorite podcast provider and like subscribe give me some stars or review. That would be great. Okay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Voices [35:29]

All we need to do is get your confidence back so you can make me more money. Y'all be wearing gold-plated diapers.

Mostly Mary [35:40]

The Risk Parity Radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.